Los Angeles - Choice Hotels International in late January announced a pair of
deals that expand its presence in areas where it eagerly wants to grow: the upscale
market and locations outside North America. A marketing alliance with timeshare
company Bluegreen Vacations added 21 new resorts to Choice's upscale boutique
Ascend Collection while a partnership with U.K. hotel operator Akkeron Hotels
Group gives Choice nine new Quality and Clarion properties in the United
Kingdom. Choice president and CEO Stephen Joyce spoke with Business Travel News lodging editor Michael B. Baker here last
month during the Americas Lodging Investment Summit about these agreements and
how Choice's new forays, including the growth of its upscale Cambria Suites
brand, are affecting its conversations with corporate travel buyers.
What's the strategy behind growing the Ascend and Cambria brands?
We have forever been the company that you stayed with on your way someplace: a lot of highway locations or places people were going through. We've been working for a while to not just be the place along the route but also where you end up. With Ascend and with Cambria, that's a lot of what we've been working on for the last couple of years. Ascend is just a phenomenal story. We started with 17 hotels. There are now 95. Those hotels have been dramatically successful as a result of the distribution we drive through them. They're in places we don't have other hotels, so it's a terrific partnership.
The Bluegreen opportunity represented two things. One was 21 great Ascends: really strong resorts in Cape Cod, Aruba, Myrtle Beach, Savannah and just a lot of great places. That's terrific for Ascend, it's terrific for our customer base and it's terrific for Choice Privileges memberships because it's a different place to spend their points. We now have 16.5 million members. It was 5 million when I started, so in about four-plus years we've more than tripled the program. It's the fastest-growing in the business. That membership, along with Bluegreen membership, which is a little below 200,000, allows for a lot of collaboration and marketing opportunities back and forth. We'll drive a fair amount of business into those properties, and they have excess inventory, and we might help to sell some.
Combine that with Cambria, which we announced two more today, in Plano, Texas, and Desert Ridge in Phoenix, with a group called [O'Reilly Hospitality Management]. They are reasonably well-capitaled, and they're fast-growing. They've only been out a couple of years and already have four or five hotels. They did a search of whom they want to grow with and ended up picking us. There's that, combined with what we did in New York, and then one near Washington, outside of our new headquarters building in Rockville, Md.—the official groundbreaking will be in March—and we have a bunch more in the hopper. We have the right partners to build that up. Those two brands really represent a new opportunity for Choice and a way we can redefine ourselves.
What are your plans outside of North America?
Unlike everybody else, we don't want to talk about China all that much. We want to talk about Europe. Europe is perfect for us because it's all about conversions, and tough conversions: 50 rooms, seven room types, mid-block buildings in great locations. That's our specialty, and that's what European hotels are, and they're looking to be branded. [We're] doing deals like Akkeron—a company that has 34 hotels, and this was for nine, and we believe we're going to do a lot more with them. It's a great relationship, and we're looking for more like that. We've introduced this technology platform [Choice Advantage], which is the only one in the space. It's 5,500 hotels, cloud-based and a completely mobile technology platform. That's helping us with our value proposition internationally, particularly in Europe, because you don't have to buy a server or cable it, or have a technology expert on property to handle it. You basically have computer terminals and that's it. Everybody wants it, so don't be surprised if you see something in the technology arena from us over time.
What about your legacy brands?
Two major things that are happening are the relaunch of both Sleep and Comfort, which are going extraordinarily well. You'll see us speed that up this year, probably with more incentives for franchisees, with the idea to get it right the first time so we don't have to do it three or four times, like everybody else seems to do, and we get it done in a couple of years, not in an extended time period. We love our core business. That's still what we're about. Comfort is going to be the engine of this company for a while, but it'd be nice to have a couple other engines with it. Cambria and Ascend are looking good, and it gets us a different customer base and a different offering, which is important to the company.
How has this affected your ability to win corporate business?
If you talk to the sales guys, there are two things occurring. The landscape has shifted, because if you originally were going to IBM or any Fortune 500 company and said, "I want to talk to you about Comfort Suites," there wasn't a lot of interest. But we're winning a lot of [requests for proposals]. Our business tracked through global distribution systems has been [increasing in the] mid- to high teens for a couple of years. We're making inroads. A lot of people are trading down because they're price-conscious. If, for $85, they can come in, get free parking, free Wi-Fi and a free breakfast, then they can get people on the road for a lot less money than they can at a lot of other properties. Having urban locations and interesting properties like Ascend and Cambria makes the conversation when you go in to a buyer a lot easier. Going into White Plains, N.Y., which is one of the biggest corporate headquarters cities in the country, and all their buyers are there. It's one thing when you come in and show pictures, but it's totally different if you take them to the hotel, buy them a drink and show them the rooms.
Are you adding more corporate sales resources?
We've already done that. We originally brought over who I thought was the best sales guy from Marriott, Michael Murphy. He reorganized and is now running Cambria and Ascend, and we brought over some other folks who were working with him to help lead it. We haven't announced the year-end numbers yet, but in 2011 they did 600,000 room nights, and their goal for that was bigger in 2012, and for three quarters they were meeting or exceeding the goal. So, it's a very different proposition. If you talk to the sales guys, you can see their opportunity and ability to penetrate an account is dramatically different than it was three or four years ago.
What are some of your concerns right now regarding distribution?
We have much bigger concerns than the online travel agencies. Google in particular is a huge risk, and it's probably not so much them trying to be a hotel company, but it's more about them sucking every dollar out of a hotel from a marketing standpoint that makes the hotels less profitable. They're in a position where if you own the highway, then decide to get into the automobile manufacturing business, you have a few advantages. We have long viewed that as probably the most significant threat. Maybe the rose is off the Apple iPhone, but if Apple gets in the space in a meaningful way, that's probably not good for us. I'd say the same about Amazon. If you look at Amazon's systems and their use of artificial intelligence, it's creepy, but they know a lot about you and they can use it to market back to you. There's no reason to think they can't apply that to the hotel business. I don't know that Amazon has any plans at all, and I'm hoping they don't, but the reality is over the next five years, it's an attractive space and is possible. The difference is all the risk is being taken by the guys who own that real estate, so they should get the bulk of that return. If that shifts, somebody screwed that up.
Our goal is to do everything we can to keep our franchisees and owners maintaining as much of a share of the pie as they have today, or maybe even grow it. That's why we try to squeeze out the overpriced channels, and we'll continue to push our technology to maintain a balance of control over where the customer is booking and who's talking to them.
So far, it's OK. It's not a runaway success. I'd grade it as a B-minus. It's working the way it's supposed to be. It's a relatively small site in terms of visitation. There's a lot of conversation about what's next, which we need to figure out, but it's done more or less what we've asked it to do, because a lot of it was about being a competitive price channel to influence the others. It's a defensive measure where, if one of the channels got carried away, it would allow us a uniform ability to move the business someplace else. Like any partnership that has a bunch of competitors in it, you're always going to struggle with decision-making. You'll have different views about what to do next, but so far, as these things go, it’s gone reasonably well, and my expectation is that we'll figure that out and move forward.
Forecasters tend to be fairly positive in regards to the hotel industry this year. Do you agree?
Yes, and it will be a pretty positive run. Somebody can still screw it up, but the hotel business at this point, with the demand growth we've got, and if consumer confidence continues to grow and employment doesn't reverse itself, we're going to have a good run. We're betting on a pretty strong year. That's what we expected last year, and we got it. What's going on in retail and housing is really encouraging. Gas prices have moderated. You worry about the taxes and cost of health care, but that looks like a pretty good environment. Barring something unforeseen, if the economy continues to recover, we're going to have a good run through 2017. It's obviously better if the economy cooperates, but it doesn't have to cooperate a lot to have some decent years.
Have corporations perhaps learned lessons from cuts that were too austere during the past downturn?
The industry needs to do a better job of being much more direct about why people travel, because it's forever been viewed as more of a nice thing than a tool, but the reality is there's a huge return on investment that comes from travel. The government stepping in and saying, "We're going to cut 30 percent of the travel" ... Well, that means you're going to be a lot less effective. It's the same with businesses. They're coming back in a way that's different. Everybody felt like the travel got excessive, not so much in the amount of travel but in the way people travel. There are new definitions around what the expectation is room-night-wise, and that's going to continue. One of the things we're going to push is putting that literature out there, doing studies demonstrating what happened to two companies in the same situation with different decision-making, and what the results were. Hopefully, having that will bring a little more sanity into discussion with the government. Everybody got so upset about the GSA thing and the guy throwing the wacky party. There is an ROI to travel, and the industry needs to stop pussyfooting around the discussion. That conversation needs to be held with the CFOs, and articles and research should be done now, not when a crisis hits.
Has the industry gotten better at that?
Much better. In a way I haven't seen in my career, you have almost every major company playing a role in trying to get the government to listen to the industry's issues and concerns and actually provide some consequences when it doesn't.
What trends do you see around mobile booking?
It is heavily oriented toward people on the road looking for something, which is why you see the navigational tools are big. What we're seeing from a more rational booking approach, rather than "I'm driving down the road, where do I stay"—which is really a replacement of the billboard, and a little better way of doing it, because you get more information—is the bulk of our business is getting booked on pads. Our view is the pads are sort of a new, free approach away from your desk. The industry average is 4 to 5 percent. We're pushing, in top months, 10 percent, so we know we're doing some things right, and we know it's a rapid advancement. We think mainstream booking is going to go that direction. Everybody's got more information, companies can control it better and they're going to be able to steer you to your RFP-selected hotels. Five years from now you'll have a dramatic departure from the standard "I'm at a desktop booking on the Internet."
What impact will this have on how corporations manage their hotel programs?
Look at Amex's announcement. They basically said, "We got behind the curve, and that's why we're laying people off." The reality is, a lot of people don't want an agent anymore because they have the access they need, and it's easier to book. This feels a lot to me like when the Internet came out, and everybody was talking about how people will still want to do this and that. Now, it's more than half our business, and we market that way. I never thought I'd run a company whose marketing fund was more dedicated online than offline. Franchisees love TV because they feel that's the one way you can make sure you're not stealing their advertising dollars, but in reality, the online activities are a lot more effective, and we can show the ROI a lot easier than from a TV program. You have to do both. My first marketing budget I had in Choice was 75 percent offline. It's now close to 60 online. It's pretty dramatic.